DATE: January 24, 2000
TO: Jonathan G. Katz, Secretary
Securities and Exchange Commission
CC: Arthur Levitt, Chairman
Securities and Exchange Commission
FROM: Michael Owen, Chairman of the Board
The Berger Funds
RE: Comments on Proposed Rules on Mutual Fund Governance (File No. S7-23-99)
This memorandum is being submitted on behalf of the independent Directors of the Berger Group of Mutual Funds (Registration Nos. are given at the bottom of this memorandum) to provide comments on the Commission's proposed rules for enhanced fund governance (as proposed in Release Nos. 33-7754; 34-42007; IC-24082).
The Berger Board has been pleased with the Commission's support of independent directors in mutual fund governance and is grateful that the Commission continues to look for improvements that will benefit fund shareholders.
The Berger Board generally supports the proposed rule changes and the Best Practices of the Investment Company Institute. In fact we are already in compliance with virtually all of the proposed rule changes and the best practices.
Two of the proposed rule changes do cause us some concern however. The first is the proposed rule limiting the affiliations of counsel to the independent directors. We believe the Commission should give more latitude to the independent directors to make their own determination of whether or not a given affiliation truly represents a conflict or appearance of conflict that is unacceptable. The proposed rules provide a very tight and restrictive set of criteria for making a determination on a waiver. In today's world of active plaintiff's class action suits we would have to think twice before ever being willing to go through the process.
We would hate to lose our independent counsel if it developed that someone else in her firm had been retained by a distant affiliate of our management company [for legal work unrelated to Investment Company Act counseling]. These types of conflicts have historically been dealt with satisfactorily through the use of "chinese walls" set up within the firm. [We see no reason why such procedures could not be relied on in the future. We are not aware of any history of abuse in this area, and we do not understand why the Commission could not deal with the occasional abuse in a specific action addressed to the specific problem.]
Of perhaps even greater concern in these times of consolidation within the financial services industry, the likelihood of future conflicts arising from a merger or acquisition is very high and could easily force fund directors to give up knowledgeable counsel because of the Commission's proposed restrictive criteria.
We believe that there is considerable risk that those attorneys that are most knowledgeable and experienced in the industry would be forced to limit their availability to a relatively few, most likely large fund complexes and their affiliates.
This would be particularly disadvantageous to the directors and shareholders of smaller complexes. We don't believe that the Commission's intent is to do anything to disadvantage any shareholders or their independent directors. But we are concerned about unintended consequences. We therefore ask that you reconsider this aspect of the proposed rules.
Another aspect of the proposed rules that gives us concern is the one that addresses disclosure requirements for so called "immediate family members." Very often directors would have no knowledge of the business dealings of siblings, in-laws or even parents or children not residing in the same residence. We feel that it would be an unreasonable burden for the directors and an invasion of the privacy of these so called immediate family members to require the directors to seek out information on any possible relationship with the very broad list of "related persons" that the proposed rules outline.
We are not concerned about making such disclosures about ourselves or family members residing in our households, but we are troubled by extending the disclosure requirements to the very broad group of proposed "immediate family members." In addition, the disclosure of remote relationship, if these relationships could realistically be discovered, might suggest a conflict when, in fact, no real conflict exists. [And, worse, might dilute the impact of disclosure of a more relevant potential conflict of interest.]
We would like to see the proposed rule modified to change the definition of "immediate family" to include only those family members residing in the same household.
Thank you for your consideration of our comments.
SEC File Numbers for the Berger Funds
The One Hundred Fund, Inc.
1933 Act No. 002-25384
1940 Act No. 811-01382
Berger One Hundred and One Fund, Inc.
(dba Berger Growth and Income Fund)
1933 Act No. 002-25383
1940 Act No. 811-01383
Berger Investment Portfolio Trust
1933 Act No. 033-69460
1940 Act No. 811-08046
Berger Omni Investment Trust
1933 Act No. 033-15867
1940 Act No. 811-04273
Berger Institutional Products Trust
1933 Act No. 033-63493
1940 Act No. 811-07367
Berger/BIAM Worldwide Funds Trust
1933 Act No. 333-05677
1940 Act No. 811-07669
Berger/BIAM Worldwide Portfolios Trust
1933 Act No. None
1940 Act No. 811-07667